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Benchmarking to boost your business

What you can measure you can manage. What you can compare, you can improve.

Curiosity, or just plain competitiveness, is an inherent quality shared amongst successful business owners. They have their finger on the pulse, always looking for the latest intel on how their business stacks up against the other players or, more importantly, leaders in their industry.

mike atkinson hayes knight

In the early 1980s Xerox found themselves in a losing battle against the Japanese competitors. When David Kearns stepped up as CEO he gave in to his curiosity and discovered that the average manufacturing cost of copiers in Japanese companies was 40-50 percent of that of Xerox.

In addition to this Kearns uncovered that it took Xerox twice as long as its Japanese competitors to take a product to market, five times the number of engineers, four times the number of design changes – and its products had 30 times more defective parts. It was no wonder the Japanese were able to effortlessly undercut Xerox's prices.

This discovery prompted Xerox to evolve their manufacturing processes into one that was more sustainable, but it also pushed quality control and therefore less waste and a lower number of defects.

This story highlights the essence of benchmarking and the importance of giving into curiosity.

You can only compare what can be reliably measured. The good news is that just about every business function can be measured: turnaround times, pricing, profit margins, average transaction values, environmental impact, staff turnover, faults/returns and even management style. In order to get an objective opinion, you could sit down with your adviser and decide on the ones most relevant to your operations. If your business already monitors its own KPIs that are important to your vision and strategy, then these might provide a solid starting point.

Comparing where and why your business is different from your local industry averages is the first step to researching performance discrepancies and getting your house in order. Conversely, this basic comparison can put to bed any nagging worries and give peace of mind that all those fluctuations were felt across your industry.

Time for us to play devil's advocate: If you compete against the average, are you not likely to remain average?

Most business owners have giants in their industry that they look up to. Who is your giant? How do you perform against them? What makes them a giant? What can you learn from the trailblazers to implement better practices within your business? You may even find there are areas where you are ahead; which will help shape your priority list.

But how do you know when you are making progress? A lot of business owners are talking about dashboard reporting as one way to engage and encourage staff to embrace the strategic direction of the business. Having dashboard reporting that compares a business against a target (either external or internal) can be a useful tool. Simply put this reminds me of the oversized thermometer chart that exists in most sports clubs to track their progress during fundraising season.

Benchmarking is an ongoing process for best practice businesses. But it's a process that provides the benefits of exceeding your goals and reaching your full potential. With succession planning on the minds of many business owners, showing data that is benchmarked against your industry can provide useful data for a purchasing party.

Linked to succession, benchmarking also plays an important role when assessing acquisition and merger strategies. With more organisations competing for smaller funding pools, leaders are compelled to explore these collaborative strategies to deliver service, reduce expenses, reach more clients and get results.

So when an acquiring organisation reviews its own benchmarking data, they are then able to see how they stack up against target businesses to find the best fit. Does the target company carry too much stock? Are their debtor collections poor? Are they paying too much rent? These are all questions that can be answered, provided the acquiring company is tracking some baseline benchmarks.

Remember – what you can measure you can manage. What you can compare, you can improve. And when it comes down to it, we all need to constantly push for improvement in everything we do in order to reach our potential – both in life and in business.

Mike Atkinson is a business advisory associate at Hayes Knight